Shruti Rajagopalan, host of the “Ideas of India” podcast, spoke at a meeting held by the Blue Ridge Center and the Economics Club in late October. Rajagopalan, who has a Ph.D. in Economics from George Mason University, has throughout her career as a public intellectual emphasized topics such as the rule of law, women in the workforce, and the legality of land ownership.
This meeting of the Blue Ridge Center was held as a discussion of the historical development of economic circumstances and practices in India, particularly as a post-colonial nation. Rajagopalan explained that having won its independence in 1947, India embarked on a journey of discovering the type of nation it wanted to be. She went on to say that, because India’s population is the highest of any singular nation in the world, the future of the nation could bring much innovation in technology, medicine, and even military strength, so long as the economic state of the country is able to flourish over the next half century and beyond.
Rajagopalan began her account of history just after India gained its independence. From the 1950s through the 1980s, India pursued a path of isolationism, believing that global trade had brought them colonialism and opting to remove themselves from the global market altogether. Although Rajagopalan’s thesis—that liberalization of a nation’s economic regulations benefits the economy—was later supported in the 1990s when the nation witnessed economic growth, for at least three decades, India was stagnant.
Leading economists throughout the twentieth century also claimed that free trade and liberalized economies were only meant for highly developed countries. However, Rajagopalan believes this is not supported by evidence. Leading examples suggest that the sooner a country implemented reforms to liberalize its economy, the quicker the nation would take off economically, notably demonstrated by South Korea and China. Regardless, India’s delay in engaging in trade and abstaining from capitalism was merely in line with what economic experts would have advised. Rajagopalan, having grown up in India prior to the 1990s, recalled only ever knowing one brand of chocolate, since competition in India was strictly forbidden by the government. Rather, all production operations were nationalized in a controlled manner, such that nothing was privately owned and there were no competing industries.
Rajagopalan contrasted this state of the Indian economy with a system that Americans would be familiar with: capitalism. In a free market economy, Americans are used to the laws of supply and demand demarcating the price of goods and services. In contrast, in socialist economics, governments face the constant question of what is essential to the market. If something is not essential, then it will not be produced. Thus, there was always a long list of shortages in India’s markets under their socialist economic system. Rajagopalan discussed delays of over 10 years for certain products, such as a Vespa or other means of short-distance transportation. In fact, the most in demand dowry to be given to grooms by brides in the 1950s and 1960s was a mode of transport such as a Vespa. As a result, there was a common joke that, when a baby girl was born, her parents should immediately book an order for a Vespa for her eventual dowry to her groom.
Due to many products being in high demand and in pervasive shortages, Rajagopalan asked the audience what the next action would be for individual Indian citizens in need of certain products. Naturally, as someone answered, the next step would be to seek out black market alternatives to avoid the massive shortages of goods entirely. As a result, black markets led to vast corruption scandals in India. This corruption was proof enough to convince the Indian government that changes needed to be made.
As such, Rajagopalan described the process of liberalization in India, which began in the 1990s. At first, as the nation started to engage in global trade for the first time in any significant way in many years, they implemented immensely high tariffs on imports to protect local industries, which were widely viewed as unsuccessful. But in 1991, India reevaluated its economic status with eight economic reforms. Rajagopalan listed these as follows:
- Devaluation of the rupee
- Liberalization of imports
- Deregulation of direct trade
- Foreign technology agreements
- Industrial delicensing
- Eased mergers and acquisitions
- Disinvestment and privatization
- Fiscal discipline
These reforms, which drastically uplifted the economic status of India in many ways, serve as the basis for Rajagopalan’s argument that all growing economies must liberalize as soon as possible. India’s industries no longer needed government permission for production, nor did they need to be licensed in the same way as before. Competition was no longer restricted. These aspects of a liberalized economy have continued to facilitate India’s economic growth since 1991, and Rajagopalan believes it may catch up to global economic behemoths like South Korea within 65 years.
Rajagopalan concluded the discussion by addressing the issue of poverty in India and around the world. Although many may believe that liberalization only benefits industrialists and rich people, Rajagopalan provided evidence for the contrary. In fact, Rajagopalan said that three million people have been lifted from poverty in the 30 years since India liberalized. However, about a third of India’s population still lives in a precarious financial position. Rajagopalan’s final remarks affirmed that doing the most good for the world would be to tackle the continual issue of poverty worldwide. With less poverty, Rajagopalan sees promises for more than just basic needs, but also for equal opportunity, a cleaner environment, fewer childhood fatalities, and much more.
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